U.S. Tightens AI Chip Export Rules For Chinese Overseas Subsidiaries
The U.S. Department of Commerce has moved to close a potential loophole that may have allowed companies to export some of the world’s most advanced artificial intelligence chips, including Nvidia’s Blackwell processors, to subsidiaries of Chinese firms operating outside China.
The guidance, issued on Sunday, indicates that leading U.S. AI chips may have reached overseas branches of Chinese artificial intelligence companies in locations such as Malaysia. The development raises concerns about the effectiveness of broader U.S. efforts to restrict China’s access to advanced semiconductors required for critical AI development.
Commerce Department Issues New Guidance
The new guidance appeared on the Commerce Department’s website on Sunday after a paper outlining the loophole circulated in Washington, according to people familiar with the matter. Reuters reviewed a copy of the paper, which stated that “the floodgates have quietly opened.” The document was dated Friday but did not identify an author.
It remains unclear how many advanced chips may have been exported during the period when the opening existed. However, one chip industry source with extensive supply-chain knowledge estimated that the figure could be in the hundreds of thousands.
In its unusual weekend announcement, the Department’s Bureau of Industry and Security (BIS) said it would enforce licence requirements for advanced chips supplied to entities headquartered in China, even when those entities operate outside the country.
A BIS spokesperson said the agency had issued guidance clarifying export licence requirements that have been in place since 2023. The spokesperson added that BIS would continue to enforce export controls rigorously in order to protect critical American technology.
Industry Response
The guidance does not alter Nvidia’s position, according to a company official. The official said Nvidia could not ship the affected chips because the Commerce Department had already imposed a licence requirement through a formal letter.
Meanwhile, AMD, another major producer of high-demand AI chips, did not immediately respond to a request for comment.
The situation emerged after the Commerce Department announced in May 2025 that it would not enforce the AI Diffusion rule introduced during the final days of the Biden administration. That rule established licensing requirements governing global access to advanced AI chips.
Concerns Over Remaining Gaps
Former State Department official Chris McGuire, who specialises in technology and national security issues, said in a social media post that the loophole enabled overseas subsidiaries of Chinese companies to purchase Nvidia Blackwell chips without obtaining a licence.
He described the issue as a significant problem and argued that Chinese companies had likely acquired the chips on a large scale.
According to McGuire, the new guidance closes that specific loophole. However, he said another issue remains unresolved. He noted that the current framework no longer requires Taiwan-based TSMC and other foundries to conduct additional due diligence to ensure that high-end AI chips are not ultimately destined for Chinese front companies.
A spokesperson for TSMC declined to comment on the matter.
In addition, the latest guidance does not require data centres to stop using the advanced chips already in operation. Likewise, it does not mandate the suspension of servicing for advanced computing systems, including servers equipped with those chips.
With inputs from Reuters